Think of it as a "Goldilocks stock." In this extremely vulnerable market in which many large-caps remain overvalued and small caps keep getting riskier, taking the middle ground can be a shrewd move. We've found a mid-cap stock that could soar as much as 62% in 2016, even as many analysts call for a bear market.
Spirit AeroSystems announced Wednesday that it was significantly ramping up production of fuselages for Boeing's 737, to meet demand as the Chicago-based giant prepares to hike 737 production to 57 planes per month in 2019. Spirit also makes fuselages for Boeing's 787.
Spirit AeroSystems designs, engineers, and manufactures large commercial aircraft structures around the world. It operates through three divisions: Fuselage Systems, Propulsion Systems and Wing Systems.
With a market capitalization of $5.6 billion, Spirit AeroSystems is a mid-cap and as such, confers greater growth potential than large-caps but less risk than small-caps. As investors get whipsawed by wild, intraday swings in global markets, tech-intensive companies with "must have" products are great "defensive growth" plays.
We especially like Spirit AeroSystems because it boasts quality management and strong cash flows, occupies a robustly growing market, dominates its niche, and isn't overvalued because of investor euphoria.
Spirit AeroSystems' current debt-to-equity ratio is a comparatively low 2.39, compared to 2.91 for aerospace/defense, 3.18 for industrial goods, and 3.2. for all equities. That means the company has the financial wherewithal to increase production, without taking on excessive debt that could come back to haunt the company. Aerospace is a cyclical industry and it's littered with the bleached bones of companies that got overextended during the good times, only to crash when demand slowed.
After years of hard times in the wake of the Great Recession of 2008-2009, the entire aviation sector is flying high, especially in emerging markets where newly affluent consumers are keen to travel.
The International Air Transport Association reported this month that global passenger traffic in 2015 rose 6.5% for the full year compared to 2014. This was the strongest pace of growth since the postrecession rebound in 2010 and above the 10-year average annual growth rate of 5.5%.
Boeing's 737 and 787 are widely popular planes desired by airlines around the world. Every 737 and 787 that emerges from Boeing's production facility factory is based on a fuselage made by Spirit AeroSystems, which is based in Wichita, Kan. The company also builds A350 fuselages for Boeing rival Airbus. In this dicey market, you should bet on companies that are deeply linked to multiyear demand.
Spirit AeroSystems has reported positive earnings surprises in three of the last four quarters, with an average beat of 7.19%. For the fourth quarter of 2015, the company reported adjusted earnings per share of 95 cents, exceeding Wall Street's consensus of 94 cents. Revenue in the quarter reached $1.60 billion, compared to the consensus estimate of $1.58 billion. Backlog in the quarter grew to $47 billion from $46 billion in the preceding quarter.
Spirit AeroSystems' stock is now trading at about $42.16. The median 12-month price target from analysts is $58.50, suggesting shares can gain 39%. The highest analyst price target is $68, implying the stock can gain more than 61%.
Spirit AeroSystems' shares have a reasonable trailing-12-month price-to-earnings ratio of 7.4, compared with 18.3 for aircraft manufacturer Lockheed Martin and 17.2 for the aerospace/defense industry.
We've just explained why Spirit AeroSystems is a "momentum stock" for 2016. We've also found a small-cap biotech "rocket stock" that's about to take off. UCLA researchers are stunned by a Nobel Prize-winning cancer breakthrough that's proven in clinical trials to eliminate lethal forms of cancer with a single dose. One small company owns the patent to this life-saving treatment. Now trading at about $5 a share, the stock of this innovative company is projected to surge 2,700% on an imminent FDA announcement. To download the full report, click here.